Report: Microsoft's Xbox division has lost nearly $3 billion in 10 years

Even as rumors have begun about the possible 2013 launch of the successors to the Xbox 360 and the Playstation 3, there's lots of talk that these products could the final game consoles ever made. Today, a game developer claims that Microsoft and Sony have already lots a ton of money on the current generation of game consoles.

Ben Cousins, a game developer who has worked at EA, Sony and other studios, currently works at Scattered Entertainment, which is making a first person shooter for the iOS platform. In a Kotaku article, he states that game consoles are sold at a loss so companies such as Microsoft can get the money back via license fees from each game that are sold on their systems.  He shows, via Microsoft's own financial numbers. that the Xbox division has lost close to $3 billion in the last 10 fiscal years. Sony's gaming division lost even more money in the same time period, with a lost of almost $5 billion. Those number do include costs such as research and development, hardware production, marketing and PR and more which makes his personal view skewed.

Cousins also says that of the 70 million Xbox 360 consoles sold since 2006, about 40 percent were bought since its last major price cut in 2009. He believes that indicates the people who bought the consoles at that time were looking for something that offered the best combination of price and performance and calls that group "mainstream gamers".

He believes that as smartphones and tablets become more powerful, game publishers will start to target the large group of mainstream gamers for those kinds of games ahead of console titles. He adds:

Without this huge group of people buying consoles or console games, the console platform holders will no longer be able to make enough money to justify developing, marketing and manufacturing the devices.

He adds that it's possible that hardcore gamers who can't see themselves playing games on a mobile device could move to playing games on a PC.

Some people might dispute his views on game consoles now that Cousins is a iOS game developer but he defends his position, pointing to his previous console game experience. He adds, "The reason I moved to mobile a year and a half ago is precisely because I came to the conclusion the consoles were on their way out. I bet my career on it. That's how much I believe in it..."

Source: Kotaku | Image via Ben Cousins

Report a problem with article
Previous Story

Microsoft's Nancy Tellem confirms more original content coming to Xbox Live

Next Story

Asus VivoTab Smart Tablet for Windows 8 looks a lot like Surface

38 Comments

Commenting is disabled on this article.

i registered just to say how sensational shallow this article is...

boo hoo... cause Call of Duty Black Ops 12: Solar Blackout for the Iphone 9 mini is going to be more viable than on a console... pffffffffff

Given the hardware quality/reliability over the years, I'd be hard-pressed to give them anymore than what they're asking. They need to sell them to you at a loss so you'll have enough money to buy a replacement shortly after the warranty expires.

I think the R&D for the next Xbox won't be as high as what they dropped into the 360 + the added 3 year warranty for the RRoD, so I think the profit margins on the new system will start off better compared to before.

Quite a lot of the Xbox division's loses are due to the millions of Xbox repairs they had to make. I bet they would have made a lot of profit in many of those years if it weren't for that.

Is this really news to anyone? Consoles have been losing money on hardware sales for generations... This isn't a new thing by any means...

neonspark said,
It was costly to defeat Sony, but well worth it.

Defeat? Only in the US, in Europe and Asia the PS3 is still king.
Especially Asia. Whole japan is PS3/Nintendo only, no 360 to be found there. And that's a huge market. Also South Korea is for the more serious gamer... almost PS3 only (altho MS tried to get them to the Xbox by dragging the Arcade titles to the Xbox though. DoA, Tekken, SC, SF etc) But these are still favored on PS3. Huge markets MS is far from major player.

Yeah because most of those other years the **** had hit the fan in the world economy! Look at the trend its going up. The earlier years would have been spent recovering the cost of the development.

I can honestly say I have never experienced that. In fact I bought my Xbox on day of release and it finally died (or I thought it did) on August 2012. I bought a slim one and loved how less noisy it was.

I later found out that the power supply died, not the Xbox. The three red rings was a good indicator. I gave it to my friend and told him to get a new supply.

I was so pleased on how quiet the new one was that I didn't want to save money by just returning the new one and buying a power supply.

aviator189 said,
Hopefully, they won't have another rrod problem with the next xbox.

I think a lot of lessons were learned with regards to that. I mean, how long since the consoles stopped RRoD'ing?

I mean, I'm not trying to take away your time traveling thunder, but I think we can safely move on from throwing that one around. lol I had a console RRoD as well, but have not had a problem since. They've clearly rectified the problem...

They make roughly $25 per device sold compared to Androids $2.85. Due to R&D, advertising and investment Windows Phone has probably cost $3-5bn. I would say Windows Phone should start making a yearly profit either in 2013 or 2014. Investing for the future is the best long term strategy.

Gaffney said,
They make roughly $25 per device sold compared to Androids $2.85. Due to R&D, advertising and investment Windows Phone has probably cost $3-5bn. I would say Windows Phone should start making a yearly profit either in 2013 or 2014. Investing for the future is the best long term strategy.

Allot of the R&D for WP8 is carried by the Windows division. Thus the Mobile division might start making a profit quite sooner. Don't forget they also get allot of money from almost every sold android device

First issue

Kotaku

Second issue

Entertainment and Devices division is a lot more than Xbox which this article is using for facts.

Third Issue

Numbers also include part of the original Xbox.

Conclusion

Completely worthless and misleading article.

ahhell said,
You missed an issue.
John posted this.

HAHAHAHA!

In all honesty, this whole thing is really bogus. And not only that, but it's being treated as if it's unusual to sell consoles at a loss... This has been going on for generations! LOL

M_Lyons10 said,

HAHAHAHA!

In all honesty, this whole thing is really bogus. And not only that, but it's being treated as if it's unusual to sell consoles at a loss... This has been going on for generations! LOL


Its not that unusual. Sony has been doing that for years. They didn't make a profit on the entire Playstation Division until far into the PS3.
They've been making losses for years on end on the whole division. And its only since the PS3slim period they slowly started making a profit.
Altho the PS2 on its own made quite a profit though, but the PS3 was eating that away for a long time.

MS lost profit? So let me get this straight, MS have sold a record number of xbox 360 and slim consoles [all for a profit NOT a loss] and has a HUGE selection of developers and publishes so many games, sells the kinect and makes profit on that too with each sale AND has plenty of suckers paying for xbox gold? And they're losing money? No, I refuse to believe this rubbish.

n_K said,
MS lost profit? So let me get this straight, MS have sold a record number of xbox 360 and slim consoles [all for a profit NOT a loss] and has a HUGE selection of developers and publishes so many games, sells the kinect and makes profit on that too with each sale AND has plenty of suckers paying for xbox gold? And they're losing money? No, I refuse to believe this rubbish.

Do note that allot of costs and incomes do not directly go to or come from the Xbox division.

developer was probably ****ty coder or coffee runner. developer probably got canned. developer got a job making easier and crappier mobile games. developer makes ****ty misleading graph about industry to try to justify his current job because its lower status than real hardcore developers. developer embarrasses himself.

Yeah I could never believe such an awesome piece of equipment could sell for so little.
I would have paid 6 or 7 hun in a heartbeat.

DoomsDayMayan said,
Well then you would be alone (figuratively speaking) in that until the price dropped. How many people do you know think like you?

The PS2 with GT3 released for around 1000 Guilders, which directly converted is around 450Euro's. While the weight on the wallet was 1000 guilders to 1000 euros. So paying these prices for consoles on launch dates is nothing crazy.

You are not American I take it? Sorry you get screwed overseas. No American is dumb enough to pay that price for a console. However, overseas, everything is more expensive and that's the norm over.

Wasn't there a report a few years ago (around 360 launch) that Microsoft had lost $4B+ on first Xbox alone? Then add RROD and initial loss on 360, how does it comes down to 3B only? I am pretty sure their profit since RROD won't be enough to cover that gap.

Considering that at least $1.15 billion of that was for a 3-year warranty write-off because of the RRoD problem, it's not as bad as it might seem. And all of their losses look as if they were when the Xbox was first being launched and it was their first console.

More importantly, the difference between a loss and an investment is market positioning. There is no doubt that everyone is anticipating the next Xbox and I expect that thing to fly off store shelves.

Yep. Another issue with this story. Devs need to understand their customer segment and appeal to properly target them with appropriate games. Not to be obvious, but this is so 1999. My daughter plays Aggressive Birds on her phone and my son just purchased COD DLC on his XBOX. Neither is going to migrate platforms. I don't see much convergence in the near future either. The current XBOX is seven (??) years old? The next may last ten years if not revolutionary happens. And guess what, that's ok. Just build the right games for the right platform.

As with every business, this is expected. Especially with the low-cost they were selling Xbox at. They make their additional revenue with Xbox Live, games, and additional content.

j2006 said,
As with every business, this is expected. Especially with the low-cost they were selling Xbox at. They make their additional revenue with Xbox Live, games, and additional content.

I'm quite sure the XBL costs on MS's side are outside this graph, as this weight in costs is mostly carried by Azure.

every business division at Microsoft has lost money at the beginning and then goes into the green. as the graph shows, the xbox is no exception. and more importantly, they have the #1 gaming brand in the world today.

I am not sure if anyone quite understands the gaming market. For the the first time ever there is a massive amount of capable little computers out there, in the form of the mobile phone.

People who are likely to game of these devices are not the same people who would play Battlefield 3 on the PC or Console. Games are fun, but we do not want the same games on these devices. There doesn't seem to be much innovation beyond words with friends or angry birds.

The traditional console + PC gaming model is where it is at. Controllers and mouse and keyboard are still a lot more functional than on screen controls.

Well, yeah. However, the Hardcore Gamer category isn't going to disappear. This customer segment will continue to play on whatever platform provides the best experience. To date, this is the Console because of the game quality and the secondary Console capabilities. The XBOX Surface will be interesting to watch.....assuming it is real.

Consoles are what big companies want to push peope to use; the best experience is on PCs with upgradeable hardware etc.